At Brightwell, our objective is to provide predictable outcomes for clients.
We aim to narrow the range of outcomes by optimising our clients’ portfolios to achieve their required funding return, whilst managing the key risks that influence their long-term objectives.
Working in partnership to understand required outcomes
We work in partnership with management teams, trustees, and sponsors to identify their required outcomes and risk tolerances, and design an investment strategy that aims to achieve these outcomes efficiently through our “one portfolio” approach.
This approach is, in principle, agnostic on setting rigid asset-class based boundaries and “allocation buckets”. We consider the characteristics of an investment and the function it may play in achieving the desired outcome rather than focusing on an asset-class label.
Although we use benchmarks to construct a portfolio and to assess manager performance, our focus is on achieving the desired outcomes at the total portfolio level.
The optimal approach to investment strategy setting depends on client requirements, scale, funding goals and covenant strength.
Whilst there is no “one-size-fits-all” approach, we believe there are some common characteristics of effective strategy setting:
Destination driven
Our approach starts with the end in mind – we believe the investment strategy should be set by considering the risk factors inherent in the scheme’s liabilities including interest rates, inflation and longevity. Our approach is to appropriately balance these risk factors, generally looking to hedge out unrewarded risks whilst taking on rewarded or diversifying risk exposures.
Harnessing competitive edge
DB pension schemes, subject to liquidity requirements, invest for the long-term. Their scale, resources and reputation often allow them to access better opportunities and more complex investment strategies and instruments to enhance investment outcomes at lower cost. We generally don’t believe we have a competitive advantage in market timing and short-term decision making – however, periodically at market extremes there is often the opportunity to be a liquidity provider and take advantage of a pension scheme’s longer time horizon.
Robust governance = improved resilience
A clear governance and decision-making structure that promotes responsibility and accountability will enhance investment outcomes.
Diversify rewarded risk premia
Risk premia exist which are the key drivers of investment performance in the long-term and the available return is a function of underlying investment risk. The relationship between risk and return isn’t static – markets offer different levels of risk compensation through time around a long-term average. Diversification is the key component of efficient portfolio construction leading to a portfolio which is more resilient to market stresses.
Sustainability breeds success
As a responsible investor, we will best manage a scheme’s assets by seeking the optimal long-term risk-adjusted return whilst limiting outcomes which might harm our beneficiaries’ shared interests.
Market inefficiencies exist
Whilst we don’t believe we have an edge in market timing, a range of factors such as asset class silos, benchmark beholden investors and ratings driven investors, mean that market inefficiencies exist that can be captured at a security or asset level by skilled, typically fundamentally focused and long-term active managers.
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